After the Treasury Department rolled out its Home Affordable Modification Principal (HAMP) reduction program in October 2010, it didn’t take long to figure out the incentive payments to investors were not high enough to encourage a high level of participation.

New figures released this week show that Treasury paid participating mortgage holders and investors $42 million in incentive payments for principal reductions totaling $4.68 billion as of April 30.

The July 19 report by the General Accountability Office (GAO) said Treasury paid the incentives for nearly 55,000 permanent modifications with principal reductions.

Treasury’s monthly HAMP report shows the total outstanding principal reduced under its Principal Reduction Alternative program was $4.69 billion at the end April.

Earlier this year, Treasury announced the PRA incentives would be tripled to encourage more investor participation. HAMP-modified loans with principal reductions that enter payment trials starting March 1 will be eligible for the higher incentive payments.

Treasury officials told GAO auditors that they “hope” the higher incentives will “encourage greater participation among investors that already participate in PRA” and entice other investors to participate.

The GAO interviewed one servicer who noted 15% of its clients had opted out of PRA. But now they are willing to reconsider due the higher incentives, especially for loans with 105% to 115% loan-to-value ratios.

Under the old incentive structure, the PRA program was not gaining much momentum. “On a cumulative basis, the proportion of HAMP permanent modifications that included principal reduction under PRA has increased from less than 1% in May 2011 to nearly 6% in April 2012,” the GAO report says.

Due to the current low participation rates, GAO said, “it is not yet possible to determine whether the changes will increase” participation in the HAMP principal reduction program.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.